“Big success comes when you bet on crazy ideas” – The Milk

(From left) Jeffrey Lee (Dong-hoon Lee), co-founder of Han River Partners (HRZ), Chad Anders, founder and managing partner of Space Capital, Aneel Ranadive, founder and managing partner of Soma Capital, and Ian Park, partner of Primer Inc.
(Source: Kim Se-jin, The Milk)

[2024 NYC 스타트업 서밋] Korean companies’ homework: ‘small capital market’

The difference between American and Korean investors is their attitude toward risk.

What American VCs are paying attention to is ‘nonsense business’

Open AI also comes to ‘Silicon Alley’ New York

The earlier you go, the better chance you have to get in before it becomes clear. If you support the best companies before they become big players, you will have a special relationship. It may be foolish, but you will see the best company. This idea doesn’t make sense at first. We want to invest in this nonsense.

Aneel Ranadive, founder and managing partner of Soma Capital

The financing environment is considered one of the biggest challenges in the Korean startup environment. It is pointed out that even if there is talent and technology, growth is difficult due to the small investment environment. To solve this problem, attempts are being made by the public and private sectors to infuse overseas funds into Korean startups.

On the 18th (local time), the ‘2024 NYC Startup Summit’ hosted by UKF (Korean American Entrepreneurs Federation) was held at the Bank of America Pavilion Center in Manhattan, New York. At the event, Korean startups, venture capital (VC), and government officials gathered to fiercely discuss startup growth strategies. What stands out at this time is the difference in venture investment between the United States and Korea.

Startups responded that they are experiencing difficulties in securing business networks and partnerships, understanding local market information, and securing overseas funding when entering overseas markets.
(Source: Kim Se-jin, The Milk)

There are limits in Korea. The reason they came to America

The domestic business environment is becoming increasingly difficult. This is because difficulties in raising funds are increasing as the venture investment market is rapidly shrinking. According to TheVC, a venture investment information company, the number of investments in domestic startups and small and medium-sized enterprises in the first half of 2024 is calculated to be 497, which is a 32% decrease compared to the same period last year. These figures seem to reflect structural problems in the entire Korean startup ecosystem beyond a simple economic downturn.

In particular, Korean startups are experiencing great difficulties as they feel the downturn in the investment market and economic recession. According to a survey conducted on 100 startup CEOs who participated in Google’s accelerator program ‘Changgu’, 4 out of 10 CEOs (40%) evaluated the current ecosystem negatively. In particular, 75.8% cited the decline in investment and 70.5% cited the economic recession as the main factor.

In addition, CEOs pointed out the lack of government support policies (32.6%), difficulties in securing top talent (26.3%), and regulations and legal restrictions (14.7%) as obstacles to the development of the ecosystem. These complex problems are deepening the limitations of financing for startups dreaming of ‘business expansion (scale-up)’.

In this situation, startup CEOs are going beyond the limitations of the domestic investment environment and using overseas markets as a breakthrough. In fact, the startups that participated in this event went directly to enter the United States. Most of them feel limited in domestic investment and are seeking greater growth potential overseas.

Kim Won-hoe, CEO of Brain Ventures, pointed out in an interview with The Milk, “It is not easy to receive investment in the United States, but it is much more difficult in Korea.” He continued, “The company has finally started making sales, and is currently operating with 20 people, and we came to the U.S. market to expand further.”

Participating startups, CEO Cho Eun-seo of Gena and Ji Chang-dae, CEO of Lively, also expressed similar opinions. They said, “We are trying to invest in Korea as well, but we came directly from the U.S. to receive investment,” and complained that it is difficult to scale up in the domestic market alone.

According to a Google survey, 37.9% of participating startups have already entered overseas markets, and 52.4% responded that they are preparing to expand overseas in the future. The most preferred target markets for startups were North America (73.7%), Southeast Asia (66.7%), and Japan (62.6%).

However, entering overseas markets was not the answer. Startups who participated in the survey responded that they were having difficulties securing business networks and partnerships (62.6%), understanding local market information (59.8%), and securing overseas funding (42.4%). This means that sustainable growth cannot be guaranteed by simply entering the market, and localization strategies and network establishment are essential.

As the domestic investment environment increases funding barriers, securing funds and building networks overseas is emerging as a survival strategy for Korean startups. However, building trust and systematically establishing partnerships with local investors is a formidable challenge.

A VC representative who participated in the event said, “When startups enter the global market, localized insights and networks are the key to success,” and advised, “It is important to have sophisticated market information and a cooperation system beyond simple overseas expansion.” The reason why business expansion in the United States and Southeast Asia is important is not only because it is essential for attracting funds, but also because it is essential for securing long-term competitiveness in the global market.

NYC New York Startup Summit Photo Wall. As the domestic investment environment increases barriers to financing, securing funds and building networks overseas is emerging as a survival strategy for Korean startups.
(Source: Kim Se-jin, The Milk)

American VC tells startups, “I want to invest in things that don’t make sense.”

Korean companies are knocking on the door of the U.S. investment market, but the U.S. is also experiencing a cold spell. The big difference is that while the financing environment has worsened, receptivity to high-risk businesses remains. American venture capitalists (VCs) invest in ideas that make no sense and support startups that create the market itself. Their philosophy is the core driving force behind the challenging spirit and potential of the startup ecosystem.

Why invest at an early stage: “Betting on things that don’t make sense”

Aneel Ranadive, founder and managing partner of Soma Capital, emphasized the importance of investing in early-stage startups during a Trend Show panel discussion. “The opportunities to invest are greatest when the likelihood of success is not clear,” he said, explaining that the best companies create special relationships when they back someone before they become big.

“When there is no system in place to support talented entrepreneurs, early startups can seem like nonsensical ideas,” Radadib said. “But we want to invest in this crazy idea.” His philosophy is to find entrepreneurs who create new markets rather than adapt to existing markets.

He recalled that companies like Google, Facebook and Tesla were seen as no-nonsense companies whose market fit was difficult to assess in their early stages. “Elon Musk had no experience with electric vehicles, and Facebook and Google initially had to face strong competitors like MySpace. However, these founders created markets and revolutionized the industry,” he said.

NVIDIA and GPU Innovation: A Success Story That Waited 15 Years

Through his experience, Nvidia founder Jensen Huang shows that a long period of challenge and failure can become the foundation for success. He recalled that Dell and Microsoft ignored Nvidia for 15 years, and at the time, parallel graphics processing units (GPUs) were evaluated as unnecessary. However, with the rise of gaming, cryptocurrency, and AI technology, GPUs have become essential hardware.

This case illustrates why venture capital values ​​long-term vision beyond short-term performance. Innovation begins with investment that looks at future possibilities, not current needs.

VC is ultimately a ‘people game’: a system for discovering outstanding talent

Radadiv defined venture capital (VC) as a ‘people game’ and explained that networks and human relationships play an important role in investment. He said, “We review founders introduced by friends with good taste along with reference materials, and discover outstanding teams as quickly as possible.”

Soma Capital has discovered many unicorn companies through this strategy. He said that the unicorn discovery rates in Soma Capital’s first two funds reached 7% and 12%, respectively, and produced a total of 22 unicorns. This shows that the power of networks and quick judgment of outstanding talent are the keys to successful investment.

Potential of Korean startups and global market challenges

Korean startups are also taking on the challenge, seeking opportunities in the global market. “Korea has excellent technology and talent,” said Chad Anderson, founder of Space Capital, and said he is always looking for opportunities in Korea. He added that he highly values ​​Korea’s potential in the space industry and is continuously looking for investment destinations with interest.

Sophie Eom, CEO of Adriel, mentioned that Korea’s strengths are low engineer labor costs and low tax rates. However, he emphasized, “Because the Korean market is small, entering overseas markets (go global) is essential.” He advised that localization and network building are necessary to overcome the high entry barrier in the U.S. market.

Galapagos problem and global strategy of Korean startups

Jeffrey Lee (Dong-Hoon Lee), co-founder of Han River Partners (HRZ), pointed out concerns about the ‘Galapagosization’ of Korean startups. He said, “There is criticism in the United States that Korea is trapped in its own ecosystem.” However, he said Korea is well-positioned to create new opportunities thanks to social media and rapid changes in consumer behavior.

Jeffrey Lee emphasized that Korea has strengths in digital transformation and consumer tech, and that there is a need to more actively advance into the global market based on these. He advised, “Korean startups must expand their networks and partnerships to secure competitiveness on the global stage.”

Success comes when you bet on ideas that don’t make sense.

The startup ecosystems of Korea and the United States have something in common in that the spirit of challenge to find opportunities in crises is important. Only startups with a tolerance for high-risk investments and a long-term vision can succeed in the global market.

Ideas that initially make no sense are likely to produce the greatest success. Google, Facebook, NVIDIA, etc. were all initially considered nonsensical challenges, but they created markets and revolutionized the industry.

It is pointed out that Korean startups should also go beyond the limitations of the domestic market and continue to take on challenges in the global market. Networks, talent discovery, and localization strategies are essential elements of this challenge. Korean startups knocking on the door of the U.S. investment market now need the courage and strategic approach to realize nonsensical ideas. The power to turn a crisis into an opportunity comes from that challenge.

Event attendees are exchanging information.
(Source: Kim Se-jin, The Milk)

‘Silicon Alley’ startup hub emerges in New York… Open AI is also coming

New York, where this event was held, is nicknamed ‘Silicon Alley’ and is attracting attention as a center for global technology companies and startups. According to a report released by research firm Startup Blink, New York is evaluated as the city with the second-best startup ecosystem in the world, following Silicon Valley and San Francisco.

As a financial hub where Wall Street is located, it has abundant investment funds, a talent pool produced by the world’s top universities, and the largest consumer base in the United States. Unlike Silicon Valley, which is centered on the technology industry, it is said to be the best place for startups to experiment with products due to its diversely developed industries such as finance, fashion, and food and beverage (F&B).

Another advantage is that it is geographically close to the political center of Washington, D.C. and the biotech center of Boston, with active exchanges of talent, technology, and capital. In May 2022, Index Ventures, a VC headquartered in San Francisco and London, announced that it would open an office in New York, and in July of the same year, Sequoia Capital, a famous Silicon Valley VC, established its first U.S. office outside of Silicon Valley in New York. did it Google, Meta, Microsoft, etc. have offices here.

Melissa Birch, Chief Operating Officer of the New York City Economic Development Corporation (NYC EDC), said on this day, “Open AI is also planning to open an office,” adding, “New York is also emerging in the AI ​​field. He emphasized, “Silicon Valley has developed AI models, but the New York AI ecosystem is leading AI innovation related to the real world, such as finance, healthcare, real estate, and consumer products.”